Estimating Crop Yield Insurance Premium Rates

Abstract

Insurance rates for crop yield protection programs have traditionally been calculated from county average yields. Where grower acreages and yields are not homogeneous, this approach leads to higher premiums and payouts and greater incidence of adverse selection. With individual grower data a production weighted rate premium calculation method can be used which avoids these problems. Furthermore, the definition of rate classes is not constrained to county boundaries. The additional complication of technical change is addressed and one solution is provided. Results are presented for the cranberry industry.